Slippage and price impact

In plain English

A large order must consume more available liquidity than a small order. If the available prices worsen as size increases, the order creates price impact. Slippage describes the additional difference between the execution expected when the order was prepared and what actually happened.

A slippage tolerance is a limit or instruction, not a promise that the order will execute. If conditions exceed the limit, the trade may fail or fill only under the venue’s stated rules.

How it works

Order-book venues consume quoted bids or offers at several price levels. Pool-based venues move along a pricing curve. Oracle-based perpetuals may apply a spread or impact function based on size and market skew. Each mechanism can quote a different expected average execution price.

Between quote and settlement, the market can move. On-chain transactions can also be reordered or delayed. The final execution records the combined result of quoted impact and subsequent slippage.

Why it matters

Execution quality changes entry price, realized PnL, and the distance to liquidation. Increasing a tolerance does not create liquidity or remove impact; it only permits execution across a wider range. Comparing quotes at several position sizes can reveal when an intended trade is large relative to the market.

Worked example

An asset displays at $100. Because of order size, the venue quotes an expected average execution of $100.50. The trader’s own expected price impact is therefore 0.5%.

Before settlement, conditions move and the order executes at $100.70. Slippage relative to the $100.50 quote is approximately 0.20 ÷ 100.50 = 0.199%. The total difference from the original displayed price is 0.70%.

How it works on Lynx

Lynx does not model entry price impact by walking an order book or an AMM curve. Its documentation describes an artificial spread added to the oracle price when a position opens, based on aggregated spot-market spreads for the traded instrument.

The documented close path uses the oracle price without that artificial spread. Slippage tolerance remains separate: it limits how far an accepted execution may move from the submitted expectation.

Common misconception

Slippage and price impact are not interchangeable settings. Impact describes how the order interacts with liquidity; slippage compares expected and actual execution.